- US stocks fell on Wednesday after minutes from the Federal Reserve revealed likely plans to lower its balance sheet.
- The Fed said it expects to roll off $95 billion worth of Treasuries and mortgage bonds each month.
- The balance sheet reduction could begin in May, along with a likely 0.50% rate hike, according to the minutes.
US stocks fell on Wednesday in a choppy trading session as minutes from the Federal Reserve's last meeting indicated plans to reduce its balance sheet by $95 billion each month.
The monthly roll-off would consist of $60 billion in Treasuries and $35 billion in mortgage-backed securities. The Fed indicated that the start of its balance sheet reduction could begin at its May meeting in a three-month phased in process.
In additional to the likely start of reducing its balance sheet later this spring, the Fed also indicated that it will likely raise interest rates by 0.50% at its May meeting.
Here's where US indexes stood at the 4:00 p.m. ET close on Wednesday:
- S&P 500: 4,481.15, down 0.97%
- Dow Jones Industrial Average: 34,496.51, down 0.42% (144.67 points)
- Nasdaq Composite: 13,888.82, down 2.22%
The Fed's balance sheet currently stands at about $9 trillion, up from $4 trillion just prior to the start of the COVID-19 pandemic. And some analysts were skeptical about how far the balance sheet reduction could go.
"It could take more than 5 years (and potentially as long as 8 years) to fully liquidate all of their holdings. Chances are extremely high that we will encounter a recession before that happens and it could necessitate adding to their balance sheet again, thus the market distortions are likely to last a long time," Independent Advisor Alliance's CIO Chris Zaccarelli said.
Still, the 10-Year US Treasury yield climbed 5 basis points to 2.60% on Wednesday, representing its highest level since 2019. The continued jump in interest rates has translated into higher mortgage rates, which surged above 5% for the first time in years on Tuesday. That has led to a 40% year-over-year decline in mortgage applications.
Former Fed President Bill Dudley said the Federal Reserve will have to inflict pain in the stock market to rein in inflation. "Investors should pay closer attention to what Powell has said: Financial conditions need to tighten," he said.
The US announced another round of sanctions against Russia, as Vladimir Putin shows no signs of stopping his war on Ukraine. The new sanctions banned all new investments in Russia, while increasing sanctions against Russian financial institutions and state-owned enterprises.
Russia on Wednesday said it had sent $650 million worth of bond payments on dollar bonds in rubles. The move comes after the US Treasury blocked Russia from making dollar debt payments using accounts at American banks.
Michael Burry reactivated his Twitter account and tweeted support for Elon Musk taking a more than 9% stake in Twitter. "Of course @elonmusk buying enough shares to control Twitter would be good for America," Burry said in a now-deleted tweet. "Period."
Billionaire investor Leon Cooperman says the US could enter recession in 2023, thanks to surging oil prices and aggressive Fed tightening. "I think the Fed has totally missed it, and I think we have a lot of wood to chop," he told CNBC on Tuesday.
Deutsche Bank also expects the US economy to enter a recession in 2023 as the Fed rapidly raises interest rates. It became the first major bank to predict a US recession, arguing that such an event is necessary to tame inflation.
West Texas Intermediate crude oil fell as much as much as 4.79% to $97.08 per barrel. Brent crude, oil's international benchmark, fell as much as 4.34% to $101.96
Bitcoin fell 3.38% to $43,667. Ether prices fell 3.79% to $3,217. Gold fell as much as 0.15% to $1,930.30 per ounce.
